دانلود رایگان مقاله انگلیسی کیفیت حسابرسی و حق تصدی شرکت حسابرسی در یک بازار محدود - الزویر 2018

ABSTRACT

We examine the relation between audit quality and audit firm tenure in the Iranian audit market, which is constrained by government policies that create intense competition for clients among many small audit firms. We develop arguments that these circumstances create cost pressures that entrench low audit quality and render auditors' plans more predictable to managers wishing to misstate their accounts. Using publicly available data for the audits of listed companies in Iran prior to mandatory audit firm rotation and the incidence of misstated financial reports identified by the Iranian Association of Certified Public Accountants Inspection Office, we find that the likelihood of a misstatement is lowest in the first two years of audit firm tenure. We also find that the likelihood of misstatement is not associated with the year preceding a mandatory audit firm rotation, suggesting outgoing auditor effort is not sensitive to the prospect of subsequent revelations of deficiencies. Although our results from a pre-mandatory rotation period show that frequent rotations appear to improve the financial reporting quality in our sample, we are wary of interpreting these results as support for the mandatory audit firm rotation policy in Iran. Rather, we suggest this is a peculiar consequence of deficiencies in audit quality inherent in the Iranian market.

5. Implications and conclusion

Calls for mandatory audit firm rotation are generally based on the expectation that audit quality and the quality of financial reports increases as the new audit firm brings “fresh eyes” to the audit and the new auditor is more independent of the client. Opponents of mandatory audit firm rotation argue that rotation leads to a reduced audit quality due to the auditor's lack of clientspecific knowledge. However, we contend that both arguments are predicated on assumptions regarding institutions and market conditions that highly value and facilitate auditor independence and competence. Recent studies show that institutional and market development factors such as legal environment and market structure affect audit quality. We argue that in some immature audit markets, conditions do not substantially encourage or facilitate auditor independence or quality. Lower investments in training, licensing, and oversight of auditors; the absence of sufficiently strong market mechanisms that reward or punish differences in audit quality; and limited audit firm resources may produce relatively low levels of auditor independence or otherwise impede audit quality. With respect to the Iranian market, we argue that such circumstances have induced the observed general absence of riskbased audit practices and increased the predictability of incumbent auditors' programs, which increases managers' opportunities for misstating audited financial reports. Consequently, managers are more constrained when the audit is least predictable in the early years of the engagement following the change in auditors. Our results are consistent with this proposition.

We find that the likelihood of identified misstatements in financial reports is significantly lower in the first two years of audit firm tenure compared to longer tenure periods, but not in the year preceding audit firm rotation. While the new auditor result also seems consistent with the “fresh eyes” contention, the absence of any pre-rotation effect (which is associated with audit firms' concerns for their reputation or liability) indicates that it is more likely that management behavior is driving the result, rather than audit firm behavior. Therefore, we conclude that our results may be indicative of a fundamental problem arising from intense fee-based competition among small firms with scant resources, which prevents firms from investing in superior audit technologies and planning.